Perhaps it is positioning prior to the election, the Fed, the strength of corporate earnings, a combination thereof, or simply Newton’s First Law of Motion which states that an object at rest will remain at rest, and an objection in motion will continue in motion with the same speed and direction unless acted upon by an external force, that the stock market continues to push higher. Regardless, as we draw closer to the end of the calendar year, investors, both retail and professional alike, will most likely be hard pressed to sell large percentages of their portfolio as they run the risk of falling further behind the indexes. While we doubt that stocks can continue at this torrid pace, if history is any guide (see below), barring an unforeseen geopolitical event, a precipitous fall from these levels is unlikely.
- As of the market close this Friday, year-to-date the S&P 500 has risen 22.95% which comes on the heels of last year’s gain of 24.23%. According to research from Edward Jones, “since 1950, there have been five previous instances in which the stock market followed a 20%-plus annual gain with another 20% year. Two of them came in the 1950s.... The next came in 1975-76, then again in 1982-83, followed by the tech bubble-phase in the late-1990s.” However, the report went on to note that “there was just one instance in the last 75 years in which the market was able to extend the 20% winning streak to a third year,” which of course was during the late 1990s which saw five consecutive gains of greater than 20%, 1995-1999. We noted within the first paragraph that “a precipitous fall from these levels is unlikely.” History supports this statement as other than the late 1990s, three of the four other time frames which saw 20%-plus returns for two consecutive years were followed by modest gains while only one 1975-76, saw a modest loss.
- Shares of the Dutch semiconductor equipment company ASML Holdings (ASML) fell more than 17% last week as net bookings of $2.83 billion for the September quarter were about half the consensus estimate. CEO Christophe Fouquet noted that “while there continue to be strong development and upside potential in AI, other market segments are taking longer to recover. It now appears the recovery is more gradual than previously expected.”
“It’s The Economy…”
The housing market remains challenged as Housing Starts slipped 0.5% or by 7,000 to a seasonally adjusted annualized rate (SAAR) of 1,354,000 during September, as compared to 1,361,000 in August (-0.7% y/y). According to Haver Analytics, “starts remained 25.9% below the most recent peak of 1.828 million in April 2022.” Of note is the fact that there must be approximately 100,000 housing starts per year to replace those lost to natural causes, man-induced causes or by the growing U.S. population. (Source, U.S. Census Bureau)
The American Consumer remains resilient but becoming more particular with their purchases. Retail Sales rose 0.4% higher during September (1.7% y/y), this after rising 0.1% in August. Spending on Motor Vehicle & Parts remained unchanged after dropping 0.4% (-0.3% y/y). Retail Sales Excluding Motor Vehicles & Parts rose 0.5% (2.2% y/y). Two key components of this report, Sales at Gasoline Stations fell 1.6% during September (-10.7% y/y) whereas Restaurant and Drinking Place Sales rose 1.0% during September (3.7% y/y) after rising 0.5% in August. (Source, U.S. Census Bureau)
The Labor Market is shaking off the impact from the recent hurricanes as Initial Claims for Unemployment Benefits for the week ending October 12th fell 19,000 to 241,000 from a “hurricanes related” 260,000 the prior week, which was revised higher by 2,000. The four-week rolling average rose 4,750 to 236,250 from 231,500, which was revised up by 500. Continuing claims for the week ending October 5th rose 9,000 to 1,867,000 from 1,858,000 the prior week, which was revised lower by 3,000. The continuing claims four-week average rose 11,500 to 1,842,750 from 1,831,250. (Source, U.S. Department of Labor)
· Mortgage Rates Trend Higher Despite the Reduction in the Federal Funds Rate by the Federal Reserve as according to the Federal Home Loan Mortgage Corporation (FreddieMac), “the 30-year fixed-rate mortgage increased for the third consecutive week, moving closer to 6.5%. In general, higher rates reflect the strength of the economy that is supportive of the housing market. But notably, as compared to a year ago, rates are more than one percentage points lower and potential homebuyers can stand to benefit, especially by shopping around for the best quote as rates can vary widely between mortgage lenders.”
We reiterate what we noted last week in that “the better than-expected jobs number really put a crimp in the continuation of the decline in interest rates. Unless some unanticipated data comes to the fore, mortgage rates should remain at or above these levels pending either a confirmation or repudiation of the unanticipated strength in the labor market, a process that will most likely take us though the balance of 2024.”
Upcoming Economic Reports scheduled to be released this week include the following, on Wednesday, September Existing Home Sales; on Thursday, the Weekly Report of Initial Claims for Unemployment and September New Home Sales; and, on Friday, September Orders for Durable Goods along with October Consumer Sentiment from the University of Michigan.
The Current Earnings Season is now in full swing. The following is a partial list of reports that may impact market sentiment, – Nucor (NUE), 3M (MMM), Danaher (DHR), GE Aerospace (GE), General Motors (GM), Norfolk Southern (NSC), Verizon (VZ), AT&T (T), NextEra Energy (NEE), Tesla (TSLA), Boeing (BA), Coca-Cola (KO), American Airlines (AAL), Dow (DOW), Harley Davidson (HOG), Honeywell (HON), Southwest Airlines (LUV) and United Parcel Service (UPS).
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Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
